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Diplomatic crisis has escalated since Saudi, UAE and others cut ties with Qatar, with flights grounded, business interrupted

Analysts on Tuesday called on Qatar’s leadership to “act responsibly” and take steps to quell the diplomatic crisis that has spiralled out of control since many of its Gulf neighbours cut ties with the country on Monday.\n(Getty Images)

By Sarah Townsend

Tue 06 Jun 2017 12:06 PM

Analysts on Tuesday called on Qatar’s leadership to “act responsibly” and take steps to quell the diplomatic crisis that has escalated since many of its Gulf neighbours cut ties with the country on Monday.

Saudi Arabia, the UAE, Bahrain, Egypt and Yemen were among those to cut diplomatic ties with Qatar on the grounds that it supported extremist groups aiming to “destabilise the region”.

Within hours, Gulf airlines, including Emirates, Gulf Air and Etihad Airways, had suspended flights to Doha, Qatar’s stock market had plummeted to its lowest level since 2009, Qatari consumers were stripping supermarket shelves fearing blockades of food and other trade, and Qatar’s hosting of the 2022 World Cup looked at risk.

Kuwait’s emir was reported to have phoned Qatar’s ruler in an apparent mediation effort on Monday as the effects of the dispute became more severe. The US and Turkey have also offered to help lessen the rift.

However, Middle East political and economic analysts told Arabian Business that Qatar needed to act quickly and take more significant measures to appease an emboldened UAE and Saudi Arabia.

Washington-based senior adviser at Gulf State Analytics, Theodore Karasik, said: “The situation for Qatar and its poor judgement can only be corrected if Doha capitulates on every aspect of its guilt.”

UAE-based analyst Abdulkhaleq Abdulla said: “Qatar is fully responsible for these drastic measures and has no choice but to act responsibly. This means first and foremost to avoid provoking GCC capitals any more.”

Graham Griffiths, an analyst at Control Risks, warned that if Qatar opts to “stand firm” then it risks economic isolation.

“The next steps will be dependent on the Qatari response to these announcements and will hinge on the domestic support [the emir] enjoys in Qatar as well as the stances adopted by the US, Turkey, Kuwait and Oman,” he said.

“If Qatar chooses to attempt to stand firm in response to these pressures, we are likely to see further attempts by Saudi Arabia, the UAE and Bahrain to isolate Qatar commercially and potentially suspend it from the GCC.

“A quick de-escalation of the crisis will likely require Doha [to signal] abandonment of the policies to which these countries have objected.”

Firas Abi Ali, senior principal analyst for Middle East & North Africa at IHS Markit, noted that in seeking to defeat regional insurgent groups, Egypt, Saudi Arabia and the UAE are “demanding a more extensive re-orientation of the Qatari government’s policies than was the case when they previously temporarily suspended relations with Qatar in 2014, for its then support for the Muslim Brotherhood.”

Failure to comply would increase the likelihood of sanctions against Qatar, he said.

While Qatar’s huge financial resources mean it can avert economic crisis, the country is vulnerable for several reasons. Its domestic banking system relies heavily on foreign cash so Qatari banks may take a hit.

Bloomberg reported that Qatar’s three-month interbank rate fell 8 basis points, or 4.22 percent, on Monday, the most since July.

Food trade will also be impacted if the crisis is not resolved – Saudi Arabia and the UAE provided $309 million of Qatar’s $1.05 billion of food imports in 2015.

Meanwhile, intra-Gulf tourism and business travel is impossible at present with flights suspended and Qatar Airways standing to take the biggest hit. Some 76 daily flights are likely to be grounded, of which 52 are operated by Qatar’s state carrier.

Griffiths said the crisis had caused “significant operation disruptions and supply chain problems as a result of the de facto economic blockade”.

He urged affected companies to assess immediate impacts and develop crisis management plans to monitor and adapt to developments as they unfold.

“Should the crisis be prolonged, they may need to reconsider their business models across the GCC,” Griffiths said.

Karasik described the impact on Qatar’s economy as “severe”. However, a paper from Capital Economics said trade ties between Qatar and the rest of the GCC are “relatively small” (other than for food imports), while Qatar’s exports to the region are limited with most of the country’s oil and gas exports going to Asia. The region’s economies may be able to “shrug off the [effects of] the dispute”, it said.